Dismal Performance of Power Generation Company Continues

Power Sector Generation – 2018

The Government of Pakistan made a provision of efficient electricity supply system as one of the key objectives of the National Power Policy 2013. To achieve this, the Government set in a motion a huge program of power generation and infrastructure through both the additions through the China-Pakistan Economic Corridor (CPEC) and Federal Government spending. Help was also sought from the private sector and multi-lateral agencies for the improvement and development of Pakistan’s power sector. The following sections provide an overview of the generation sector and discusses new generation capacity, public sector generation’s woes and difficulty and progress made so far on critical power generation projects.

The following projects have been added to the national grid as per the CPEC program:

Operational Power generation Projects – China Pakistan Economic Corridor

Apart from the CPEC projects, the Government’s own power sector generation initiatives are as follows. As it can be seen however, that performance of the public-sector generation projects requires a much-improved performance than the one currently demonstrated.

Near Operational Power generation Projects – Public Sector

Source: NEPRA’s Monthly Fuel Price Adjustment Data

The above picture is a gloomy one indeed. The RLNG power plants are producing next to nothing to the national grid and raises serious questions as to their operational viability. The earlier commissioning date for the Haveli Bahadur Shah RLNG plant was April 15. Under the agreement, the COD (Commercial Operation Date) of both the projects was January 9, but so far these are not functional despite the lapse of over five months. While the government wanted these projects to come online before May 2018 – the testing phase keep pushing the eventual operations delayed. The production in the range of 4% – 8% has also affected the RLNG supply chain.

There is also an insurance issue going forth. The National Insurance Company Limited (NICL) has already refused to provide reinsurance cover to the two RLNG projects of 2,460 MW saying the risk factor is on the higher side, as the plants had never been tested or tried anywhere in the world and therefore the Ministry of Finance should provide a counter-guarantee for the reinsurance. The Government remains in a quandary whether to provide for a counter-guarantee or it should start operations with adequate insurance. If NICL seeks a reinsurer to arrange cover from a private entity from the global market, the insurance cost will certainly increase and so will the tariff. Further, since the plants have not come online as per the COD, the Government is believed to have imposed penalty of $1,200,000 per day on the contractor of both the projects ($600,000 per day penalty to each contractor) – which does not bode well for the contractors and sets a bad precedent for the investor community. The Bhikki power plant is also assumed to have come to a halt, as the seal of the power turbine-4 had burnt damaging the rotor. As a result, the Unit-4 is no more operational. The repair will take additional three months.

Power Generation Units – Existing Plants

The performance of public sector thermal power plants (GENCOs) have been found to be lacking in terms of all Key Performance Indicators (KPI) for the past many years. As NEPRA reported in its 2016 State of the Industry Report:

“It was also observed that a number of power generation units have outlived their useful lives, operating at lower than their rated capacities and inferior efficiencies. These power plants have not only poor operational results, the work force which is already on the higher side on per MW basis remained idle due to their closure and non-operation; contributing towards higher cost of generation”

It further continued:

In order not to pass on imprudent costs to consumers, the Authority had earlier advised all the GENCOs to carry out performance tests, so that degradation in their operational capabilities, efficiencies and administrative factors like manpower and overhauling and maintenance schedules are set afresh. The performance tests for two of the GENCOs (TPS Jamshoro and TPS Muzaffargarh) have been completed and the Authority while deciding on the tariff petitions of Jamshoro Power Company Limited and Northern Power Generation Company Limited have determined tariff components using the latest results. At the same time concerns of GENCOs have also been addressed by allowing certain parameters which were not part of their tariff earlier.

Operation of new power plants like 747 MW Guddu Power Plant and 425 MW Nandipur Power Plant are also glaring examples of poor governance by the public sector. In case of Guddu Power Plant, according to the information provided by the company to NEPRA, the plant underwent testing and commissioning for more than 8 months, whereas prudently done, testing and commissioning phase lasts for 20 to 25 days only. Even after the COD, 747 MW Guddu Power Plant, which is among the most efficient plants in the country, has been operated for 53% of the time only, during the reporting year. Nandipur Power Plant is another typical case of poor handling by the management. However, refusal of the regulator, to allow any imprudent costs related to such projects, is not viewed in the context of the health of overall power sector”